Tax Tidbits
by Steven Mendelsohn

It has often been noted that disability has entered the
mainstream of society.  Now we have further evidence of that.
Accessibility was attempted to be used as a tax shelter.

In the November 2009 Tax Court case of Risley v.  Commissioner of
Internal Revenue, (T.C.  Summ.  Op.  2009-172), a couple claimed
$10,000 a year in deductions for making their business, a web
site, accessible to the disabled.  The business appeared to
generate no income, and we have no idea what it purported to do,
except of course provide a $10,000 offset against other income.
Suffice it to say, the couple lost their appeal.

Another case where the taxpayers lost, but where their claims
were more plausible, is Doherty v.  Comm'r.  (T.C.  Memo 2009-99
(May 2009)), where various business deductions including the
disabled access credit were denied to an investor in payphones
and Atm's.  As an investor, the taxpayer was not actively engaged
in a "trade or business" and was not required to comply with the
ADA, and therefore was not entitled to the disabled access credit
which is available to help offset ADA compliance expenses.

Now, so that you won't lose out this tax season or in the future,
a couple of points may prove helpful.  First, now that e-filing
is readily available for most returns (IRS Form 8879), refunds
can come much faster, often within 2-3 weeks of filing.  This
means there is less need than ever to seek or to accept a costly,
high-interest refund anticipation loan (RAL).

The widespread use of e-filing gives rise to another suggestion.
When you file a return you can choose electronic deposit of your
refund, and under the rules (see IRS Pub.  4542) you can even
split the refund among several accounts.  Speed, security and
flexibility are among the goals served by choosing this option.

One good reason why low-income taxpayers with disabilities might
want to split their refunds is the means-tested social programs
on which many are dependent.  Tax refunds are usually exempt
(excludable) from being counted as income under most means-tested
or so-called needs-based federal benefit programs, but they are
not permanently exempt from being counted toward asset or
resource limits.  Thus, although you will have a grace period
anywhere from one to nine month after receiving the refund,
depending on the benefit program in question, the inescapable
fact is that eventually your tax refund will count toward
resource limits, and if the money pushes you over the financial
eligibility threshold, serious consequences can ensue ranging
from disqualification to spend-down.

So the trick, which electronic deposit and split refunds makes
easier, is to get the money into one of the several types of
accounts that allow people to exceed ordinary resource limits if
they are saving toward certain approved objectives.  These
accounts include individual development accounts (IDA's), plans
for achieving self-support (PASS) and some other vehicles,
depending on the program.  If you can get the refund directly
deposited to one of those account types, or if you can put the
money into the account after receiving the refund but before the
time period for "noncountability" expires, you should be all
right, and a separate account, which is often required anyway,
makes tracking simpler and documentation more straightforward.

Ironically, changes in tax law covering your 2009 return have
complicated the issue for some people.  There are a number of new
refundable credits available, meaning that people than
usual who owe no taxes will still get refunds.  You need to file
a return in order to get any refund, and in order to benefit from
such valuable refundable credits as the earned income tax credit
(the most important of the refundable personal credits, now
available to families with three children or more having incomes
up to just under $50,000), or such partially refundable credits
as the American opportunity credit and the child tax credit.

Because of fear of filing, all too many people leave money on the
table to which they are entitled and which at the very least, if
they cannot manage to put in sheltered savings, they could at
least spend within the available time).

An interesting wrinkle here presents an opportunity to do
yourself and society some good at the same time.  It is an
opportunity for citizen advocacy in relation to state income and
resource limits.  Under a number of programs, states have the
option to raise their asset limits above those prescribed in the
federal law.  The mechanism for doing this differs from program
to program, but it can be done in both SSI and Medicaid.  State
flexibility under Medicaid includes the ability to exclude
certain items from income or resource "count ability" for longer
periods than specified by the federal law, sometimes to exclude
them altogether.  A recent reminder to the states from the
federal agency overseeing Medicaid reminded them of this
flexibility in connection with tax refunds (see Center for
Medicaid State Operations (CMSO) Bulletin, February 25, 2010).

Many people who have studied the matter seriously, or who
understand that the truth is often counterintuitive, now
recognize that income and asset limits do more harm than good.
What could be less cost effective to the public, less conducive
to economic self-sufficiency for recipients, or more demoralizing
for everybody than the armies of workers hunched over their
computers checking whether someone earned or saved $2 too much in
a given period, or more debilitating than the fear that imprisons
so many as a result?  Indeed, some studies show that income and
asset limits in some programs actually cost more to administer
then they save, and that their relaxation or elimination does not
result in hordes of applicants beating a path to the door of the
benefits office.

You may be able to help nudge your state toward easing or even
eliminating some of these counterproductive limits.  This may
seem an unlikely time for trying this, given the huge budget
deficits that many states face, but if officials can be shown
that real savings would accrue, then the deficit argument can
actually be turned to advantage.

Finally, an employment-related note.  Pending tax legislation
that will be signed into law by the time you read this should
help people who are unemployed.  It will give employers an
exemption from the employer-portion of Social Security taxes
through the end of the year for unemployed workers who they hire,
and if the workers stay on the job for a year, the employer will
get an additional $1,000 tax credit.

Experts disagree over the impact of this program, but to whatever
extent this works as a targeted hiring incentive, its relative
value to employers should be greatest for lower paying jobs.  If
the $1,000 credit is constant, no matter the salary being paid to
the worker, then it is worth more in percentage terms to the
employer for each $15,000 a year job than for each $30,0000 a
year position.  Put another way, why get one $1,000 credit for a
$30,000 worker if you can get two $1,000 credits for hiring and
retaining two $15,000 a year employees at the same aggregate
$30,000 cost?  Stay tuned.  Time will tell.